Altman Z Score or Ratio

I’m in the middle of a busy week. Let’s get started with the excitement in big D. That’s Dallas. I started this last week on Tuesday doing two mega/keynote sessions for my friends from ISM (International Sourcing Management). I’ve presented keynotes at ISM for about 5 years now. My finance training is a good fit for purchasing and supply chain management professionals in this group. This year there were about 2,500 people who showed up at the Texas Gaylord.

I had two full sessions one on the basics of income statement, balance sheet, and cash and the second session on cash flow. I also squeezed in a book signing for Financial Intelligence which sold briskly this year at their association bookstore. This is always a great group. A lot of supply chain people need to understand the finances of their suppliers and partners. There are always questions around what one ratio or metric should we be looking at? Some of these professional use metrics like the Altman score or a certain ratio. I always answer that there is no one number. In fact, I like to point out that if they focus on one metric usually a partner can make that number look good. On the other hand it gets harder when you look at several metrics.

The Altman Z score is an interesting one. Many use it to predict the viability of a business. A couple of years ago I looked at that metric for my manufacturing business Setpoint Systems. At the time I looked the Altman Z predicted we would be bankrupt within one year. This was primarily because we had a large project on our books that created a large deferred revenues liability. Now after the successful project completion our Altman Z is very strong.

I also talked with this group about my new book Project Management for Profit. It turns out that many of these purchasing executives struggle with understanding where their vendors are on critical large projects they manage. Our PM4Profit system is a way for them to require weekly discipline on their large projects and critical custom buyouts.

Finally, whoever got my iPad from the cab where I left it, I hope you enjoy it. 🙂

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